NEW YORK – A report out last week from the Republican staff of the Senate Budget Committee highlights a critical point about Obamacare: The law’s negative effect on labor markets helps explain why it will increase deficits by $131 billion over the next 10 years.
This finding stands in stark contrast to Democrats’ repeated assertions that the law will reduce the deficit.
The public dialogue on Obamacare has thus far largely focused on how the law affects premiums and limits access to certain health insurance plans or doctors. While these side effects are troublesome, it is perhaps more significant that Obamacare has had — and will continue to have — a substantial impact on labor markets, jobs and the budget picture.
Obamacare appears to affect employment in two ways: It decreases the supply of labor (the number of people in the labor market), as well as the demand for labor (the number of jobs available).
This phenomenon was aptly named the “health care employment squeeze” in a study released by the American Health Policy Institute last month.
In short, Obamacare creates an employment double whammy: The cost to many employers of hiring workers goes up, since those with more than 50 employees have to provide increasingly expensive health care.
Meanwhile, employees’ incentives to work go down, because they can get federal subsidies to buy insurance outside the workplace.
In February 2014, the Congressional Budget Office released a helpful estimate quantifying the supply-side employment impact of Obamacare.
The report concluded that by 2024, the equivalent of 2.5 million full-time workers would leave the labor force because of Obamacare.
Put another way, the law creates strong incentives for millions of people to just stop working — even though the Obama administration tried to spin this outcome as a good thing since it would allow people to “pursue their dreams.”
The report, just released by the Senate Budget Committee Republicans, makes the intuition about the impacts of Obamacare concrete: Fewer people working means less aggregate income is being earned, which translates into less tax revenue for the federal government. That, in turn, leads to increased deficits.
So we now have evidence that Obamacare will drive deficits substantially higher, rather than cutting them.
This is a finding that’s sure to be fodder for Republican candidates from now until the Nov. 4 election.
Lanhee Chen is a Bloomberg View columnist.